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New IRS online tool helps self-employed ascertain tax withholding

Posted on September 5, 2019

The IRS’ most recent online tool, the Tax Withholding Estimator, is just the thing for freelancers and those with side jobs to accurately determine the right amount of tax to have taken out of their pay.

The estimator is an expanded, mobile-friendly online tool that replaces the Withholding Calculator, which, since 2001 had offered full-time workers an online method for checking their withholding.

The new Tax Withholding Estimator offers self-employed individuals, workers, retirees and other taxpayers a more dynamic and user-friendly way to calculate the amount of income tax they want to have withheld from either wages or pension payments. Among other things, the estimator allows users to enter self-employment income including second jobs, freelance work, and part time jobs, in addition to regular wages or pensions.

“This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed earlier this year,” cautions Mike Poynter, CPA at Teipen Selanders Poynter & Ayres. “It’s also critical for those who made withholding adjustments in 2018 or had a major life change, such as marriage, divorce, childbirth, adoption, buying a home, or any substantial change in pay.”

The estimator automatically calculates the self-employment tax and the self-employment tax deduction and incorporates these into its overall tax liability estimate. The tool also alerts the user if they qualify for any special tax benefits, including the self-employment health insurance deduction.

Other Tax Withholding Estimator features include:

  • Plain language to improve taxpayer understanding.
  • The ability to target either a tax due amount close to zero or a refund amount.
  • A progress tracker to establish how much more information users need to enter.
  • The ability to go back and forth through the steps, correct previous entries, or skip questions that don’t apply.
  • Tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
  • Automatic calculation of the taxable portion of any Social Security benefits.
  • Links user directly to forms needed for filing, such as Form W-4, Employee’s Withholding Allowance Certificate
  • A place to enter wages and withholding for each job held as well as jobs held by a spouse.
  • Users can enter pensions and other sources of income, too.

At the end of the process, the tool makes specific withholding recommendations for each job and spouse’s job, including incorporating any self-employment income entered into the estimator.

“With only a third of the year remaining, I encourage any taxpayer unsure of his/her withholding structure to use this tool to take a Paycheck Checkup as soon as possible, stresses Mike Poynter. “That way there is time between now and the end of the year to make sure they are having the right amount of tax withheld and avoid a surprise when they file taxes next spring.”